India cbank tightens provisioning rules for restructured loans

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Last Updated: Thu, Jan 31, 2013 19:30 hrs

MUMBAI, Jan 31 (Reuters) - India's central bank tightened
rules on Thursday governing how banks and other financial
institutions provision for restructured loans, based on the
recommendations of a panel.

The Reserve Bank of India (RBI) said the amount lenders must
set aside against potential losses on new loans would rise to 5
percent with effect from April 1, 2013. It had already increased
the provisioning requirement to 2.75 percent last year.

The amount lenders must set aside for loans that have
already been restructured will rise to 3.75 percent from March
31, 2014 and then to 5 percent with effect from March 31, 2015,
the RBI said in a statement.

The central bank also said that with effect from April 1,
2015, restructured accounts would be immediately classified as
sub-standard.

Non-performing assets that have been restructured will
continue to have the same asset classification as prior to
restructuring, it said.

The RBI set up a working group early in 2012 to review its
guidelines on restructuring of loans by banks and financial
institutions and suggest changes taking into account the best
international practices and accounting standards.

It reported in July and the central bank first lifted
provisioning amounts in line with its recommendations in
November.

With economic growth in India slowing and some companies
seeing pressure on their revenue and margins, there are rising
concerns about asset quality at India's banks.

India's GDP growth is on track for its worst year in a
decade, and recently the RBI lowered its growth forecast for the
fiscal year ending in March to 5.5 percent from 5.8 percent
earlier.
(Reporting by Shamik Paul; Editing by Catherine Evans)